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7.0. EDSR 03-13-1995 AGENDA ITEM NO. 7 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY S MEMORANDUM TO: Finance Committee FROM: William Rubin, Executive Direct° '1 4 " DATE: March 3, 1995 SUBJECT: Micro Loan Request From T.J. Properties Introduction T.J. Properties. comprised of Mr. Tim Smith and Mr. Jerry Smith, of T.S. Construction and Century 21 White Dove respectively, requests a loan from the EDA Micro Loan Fund in the amount of$48,000. This loan would be used by T.J. Properties as secondary financing for its new office building at 403 Main Street. 411 The EDA Finance Committee should note that a Micro Loan request was not submitted prior to the construction of this project in accordance with policy guidelines. However, the project was expanded to include the second floor of the office building being completely finished as well as tenant improvements to a greater portion of the lower level. These upgrades resulted in an increase in construction costs of approximately $80,000. Additional cost overruns created a total shortfall of approximately $98,000. A second loan from T.J.'s primary lender reduced the shortfall to $48,000. The balance of the shortfall (i.e. $48,000) is being requested from the Micro Loan Fund. Bachround Finance Committee members will recall that the East Main corridor has been an area of recent office redevelopment activity. Numerous single family homes have been demolished or moved to accommodate a variety of projects. Because this area is a high priority for the City, small redevelopment grants have been used to reimburse the redevelopers for extraordinary costs associated with demolition, foundation removal, and fill compaction, etc. i P.O. Box 490 • 13065 Orono Parkway • Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425 Equal Opportunity Housing and Equal Opportunity Employment The cost of the T.J. Properties project is $450,000, broken down as follows: Purchase of 403 Main Street $ 76,245 Purchase of 413 Main Street 83,000 Construction Costs (new office at 403 Main) 282,944 (at "cost") Miscellaneous Loan Costs 6,016 TOTAL $ 448,205 Applicant equity and sources of financing for the office project are broken down as follows: Primary Lender (Initial Loan) $ 245,000 Primary Lender (Second Loan) 50,000 Applicant Equity 107,000(1)(2) EDA Micro Loan 48,000 TOTAL $450,000 (1)Broken down as follows: Cash:$80,000(Sweat equity such as Dampproofing/$600; Carpentry/$17,693;Insulate and Poly • Walls/$1,364;Roofing/$2,693;Landscaping/$5,000;Contracting Fee/$51,053 for a total of$78,403)and $27,109 cash proceeds from a closing on a home sale(sale price of$78,812 less moving expenses/improvements of$51,703 equals proceeds of$27,109) (2) The residence at 403 Main Street was moved to a lot in Zimmerman;following improvements and restoration there,it was sold. Cash/Equity Summary: Cash $ 80,000 Closing Proceeds 27,109 TOTAL $107,000 Loan repayments are proposed as follows: Source Term Interest Rate Security Primary Lender 20 years 9% (subject to adjustments) First position Primary Lender 20 years 10% (subject to adjustments) Second position (second loan) EDA Micro 15 years 9% (prime) Third position Loan adjusted semi-annually • • Debt service for the :ro'ect is outlined as follows: p ) o s Source Annual Debt Service Primary Lender (1st & 2nd Loan) $32,268 (Initially) EDA Micro Loan $ 5,846 (Initially) TOTAL $38,114 Income/Expenses/Cash Flow. Etc. The office building at 403 Main Street is intended to provide professional office base for Century 21-White Dove, T.S. Construction, and Walsh Title. Income from the leases will be applied toward debt service. In addition, the remaining residence at 413 Main Street also generates a monthly income that can be attributable to debt service. The first year cash flow from the leases and the rental income is projected at $45,600. For the second year, this increases to $55,200. In 1995, expenses such as insurance, taxes, and principal and interest payments (based on twelve payments) are projected at $44,714. In 1996, these expenses are estimated at $54,914. Circumstances for Loan Request • Information concerning the basis for this loan request is more thoroughly g Y outlined in a letter dated February 24, 1995, from the principals of T.J. Properties. In addition, the applicant's primary lender has also identified supporting rationale for the Micro Loan request. Should the Finance Committee recommend approval of this loan, perhaps it can be done subject to a condition which requires that T.J. Properties apply the proceeds from a future sale/closing of the former Century 21 building at 907 Main Street toward reducing the EDA loan balance. This condition enables the EDA's participation in this loan to be substantially reduced based on the disposal of surplus property currently held by Tim or Jerry Smith. Action Requested Following its review of the loan request from T.J. Properties, the Finance Committee is asked to make a recommendation to the EDA Commissioners regarding the funding of this loan. The EDA will meet on March 13, 1995, to consider this matter. As with previous EDA loans, this loan would be secured by a real estate • mortgage on the 403 and 413 Main Street properties along with a Promissory Note and Personal Guaranty signed by Tim and Jerry Smith of T.J. Properties. Further, it is reasonable to suggest that the EDA loan be paid off in part or in full following the sale of the former Century 21 office at 907 Main Street. Presentation Tim Smith and Jerry Smith of T.J. Properties will make a short presentation to the Finance Committee regarding its loan request. • I 411 February 24 , 1995 403 Main St. Elk River , MN. 55330 • Economic Development Authority Elk River, MN. 55330 Dear Sirs : This letter may clarify some of the information on the application . Due to the changed plans and some unexpected costs in the described project, it is necessary for us to seek additional financing . After reviewing our needs with our primary financing source , The First National Bank, it was suggested that we apply PP1Y to the EDA for help as we were approaching the limits of which we could borrow for the project. I realize that normally this application would be sub- 0 mitted prior to starting the project . However , as mentioned above , the need for finishing the entire building at this point and some additional unexpected costs that came up, put us into a position of shortfall . The primary occupant of the building , will be Century 21 White Doye Realty, which had 30 agents prior to th.e move and now has 35 with 5 new agents additional that are in training which will bring the 'tota,l to 40 with a capacity of 50 .. Century 21 also employs 5 support stagfr 1 full time receptionist , 2 parttime receptionists , 1 Sales Managers and 1 Office Manager. When we reach full. capacity, we will be employing 2 additional support staff peoples T. S . Construction will also operate out of the structure , which. curre.n.tly employs 2 people . • Walsh Title has also opened an office in th.e building and currently is staffed with one person with another in training and will eventually have a staff of four . The property at 413 Main St. is currently rented as a residential property for $700 per month. 02/18/95 11:23 $812 441 3921 FIRST NAT. Mmit .._ _igiuuu ECONOMIC DEVELOPMENT MICRO LOAN FUND ELK RIVER, MINNESOTA APPLICATION • •• APPLICANT T. J . Properties ANNIMIMINW ADDRESS 403 *Main St. • CITY Elk River STATE 'M�_ZIP CODE 55330 ��� CONTACT PERSON(S) Tim Smith & Jerry Smith • J T BUSINESS PHONE 441-7891/441-2248 HOME PHONE 441-8643 or 441-2397 AMOUNT REQUESTED 47 , 800 . 00 ' TERMS REQUESTED 20 years amortized monthly 475-70-3766-T SOCIAL SECURITY NUMBER 427-36-9206-J FED ID f STATE ID f 1. Type of Project: x Construction/New Building ,Expansion/Existing • Building Equipment/Machinery Purchase Remodel/Commercial. Retail/Industrial Industrial Inventory Working Capital Other _ - • 2. Describe Project: Office building housing T. S . Construction , Inc ., & Century 21 White Dove Realty & Walsh Title - • • • 02/16/95 11:24 %2612 441 3921 FIRST NAT. BANK Q007 • 3. Purpose of Loan: • 411 , To pay for the finishing of upper level and 3/4 of lower level ' of buildin• used to house all the realtors and Walsh Title . • 4. y,_.• • • • 4. Cost Of Project: See attached A) Land • $ 15 e . _ , B) Buildings (attach plans & costa) $ 'C) Equipment/Machinery/Fixtures (attach list and estimated costs) $ D) Remodeling E) Industrial Inventory/Working Capital $, __ • F) Other (attach description) LOAN VECS (o+ ©f (p ,TOTAL COSTS 5. Proposed Financing: • S URGE NAME TERMS AMOUNT A) Bank Loan 1st National $ 245 , 000 B) Bank Loan 1st National $ 50 , 000 C) Other Frivato Funds • $ D) Applicant Contribution $ .10.04 E) Other $ F) Fed Grant/Loan G) State Grant/Loan $ • H) This Loan EDA $ 4%, 000 TOTAL FINANCING • $ 1150t009 FI1... .,.L... obi O tt 8 • 6. CoilaLeral Lu ou assigssau (udscrlue auu show 14us pos41.44.931) 1 ..._ • . A) To Bank: _ 'f LM, -11k( B) To Hanks Z Nb c)41/ t C) .To Private Funding Source: D) To Other Source: E) To Federal Govt: F) To State: 0) To This Loan: 3 V1-•b EDCL Ofiod C 7. Value of Collaterals OST BOOK VALUE EXISTING A) Land LIENS B) Buildings $ $ C) Macri. & Equip. $ D) Other • °E) Other ' . fib8. Employment*: Presents # of Employees TS 3 21 TS C21 nt Total Payroll65s000/l , loo , 000 4 staff After Project: # of Employees2-Ts , 35Aa/5Sta $+Otal Payroll6s 000�, 400 , 000 *If Loan. is for Job Retention Only, Explain in Business Plan. 9. Attorney, Accountant (Names, addresses, : phone) . $74ck. Terpstra 913 Main Str , Elk River • BarEy Vs�ke - - 441-4070 831 Main St. Elk River 441-5060 • 10. Bank and Other Credit ReferenCes (Names, Addresses, phone) : . 1st Nationl Tom Lund 441-2200 River Valley Lumber Burt 441,-2343 02/16/95 11:24 $`612 441 3921 FIRST NAT. BANK 01009 11. Attach and include the following: • ...,,A) Written Business Plan: 1. Description of Business 2. Ownership 3. Management 4 . Date established • 5. Products/Services 6. Future Plans • B) Financial Statements for past two years 0 Financial Projections for two years D) Resume of Owner/Management E) Personal Financial Statements of proprietor, partners, guarantors F) Letter of commitment from applicant pledging to complete during the proposed project duration G) Letter of commitment from the other sources of financing, . stating terms and conditions .of their participation in project • ..._ H) Other III • • -�,I) • Other .7) Pee (1% of amount of loan request) • • • • yk` 7 i t[.; 104/10/V0 11:4.7 1,1014 441 4UG1 Y 1K51 (4A1. t3MlK (®p1• Q • • • .4 Y/We certify that all information provided in this application is true and correct to the best of my/our knowledge. I/We authorize the City of Elk River and the Finance Committee to check credit references and verify financial and other information. I/We agree to provide any additional information as may be requested by the City and ,the Finance Committee. • DATE_2- --'3 5 . 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Q z x• C co v. w cp • • c w . `t �• - 'c w CO Z v N I C V -I 41 y `___ .: T . . cn . .P; . ....4„ hi '�• r • rQ i W w '• '' V ccs 1. ..--v-- y L • CICO �t Z Cl) i ••• `• •k • ' Y- j ! :::- II . i • 7:7F717 ' . 1\ ' 1 v ld 00 . 59 • SV]W T y • c9; i 0 4.. ? K 1. 1 al I \ �S — i t---- .111 FIRST NATIONAL BANK OF ELK RIVER Bill Rubin City of Elk River Economic Development Micro Loan Fund RE: T.J. Properties Tim Smith and Jerry Smith formed T.J. Properties for the purpose of constructing and owning a commercial building at 403 and 413 Main Street, Elk River. The building's main tenant would be Century 21. The project consists of acquiring 403 and 413 Main Street, moving the house on 403 Main, constructing building on 403 Main with parking lot on 403 and 413 Main. The residence on 413 Main Street will continue to be rented as a residence. Current project summary: Estimated Project Cost: $450,000 First National Bank of Elk River Mtg: (245,000) • First National Bank of Elk River 2nd Mtg: ( 50,000) Owners Equity Injection: (107.000) Shortfall: $48.000 Reason for shortfall: The project was expanded to include completely finishing the 908 Square Feet of 2nd story and modifications of lower level. These changes caused an increase in construction cost of approximately $80,000. The increased construction costs combined with cost over-runs caused a shortfall of $98,000 for the project. First National Bank of Elk River agreed to provide additional $50,000 of financing for a total of $295,000. Appraised Value: The project was appraised at $370,000 by Riverside appraisal July 29, 1994. The resulting loan to value for the Bank would be 80%. The additional $47,800 of financing requested from Micro Fund would put total loan to value at 92.6% of appraised value. The appraised value will increase due to the additional 908 Square Feet of finished space that was not • part of the original appraisal. The modified appraisal value would need to $381,000 for a 90%LTV. The appraised value of the finished building should most likely exceed $400,000. ANOKA OFFICE ELK RIVER OFFICE ZIMMERMAN OFFICE FIRST NATIONAL MORTGAGE FIRST NATIONAL 1121 W.Highway 10 729 Main Street Mary&Main Street 716 Main Street INVESTMENT CENTER Anoka,MN 55303 Elk River,MN 55330 Zimmerman,MN 55398 Elk River,MN 55330 729 Main Street (612)422-0537 (612)441-2200 Local:(612)856-2266 (612)441-7133 Elk River,MN 55330 Metro:(612)421-0463 (612)441-2200,Ext.602 • Secondary Financing: An application to the Micro Fund was not submitted prior to construction because the original project financing requirement of$245,000 met all Bank loan policy guidelines. The increase in amount of debt and debt service for the project has resulted in the need for secondary financing sources. This project fits the Micro Loan Fund parameters by meeting city redevelopment plans, increasing local tax base and job creation/retention. In summary,the project has maximized conventional financing due to; (1)the increase in project cost and (2) the unique combination of a commercial building and a residential rental unit securing the loan. The Micro Loan Fund can provide the necessary secondary financing to complete this project and maintain the economic viability of the City of Elk River's business district. Thomas L. Lund • Assistant Vice President 410 ant 21. • White Dove Realty, Inc. A CENTURION'Office-1993 A Quality Service Award Winning Office-1993 907 Main St. Elk River, Minnesota 55330 Fax 441-4699 Business 441-2248 CASH :FLOW 1st YEAR:; MONTHLY ANNUAL Residential Rental $700. 00 $8 ,400 Walsh Title $800. 00 $9 , 600 T. S . Constr. $200. 00 $2 , 400 Century 21-White Dove $2 , 100 $25 , 200 $3 ,800 $45 ,600 .2nd YEAR Reisdential Rental $700. 00 $8 ,400 Walsh Title $900. 00 $10 ,800 • T. S . Construction $300. 00 $3 ,600 Century 21-White Dove $2 , 700 . 00 $32 ,400 $4 ,400. 00 $55 , 200 Insurance (both bldgs) 1995 1996 $1 , 800 $1 ,800 Taxes (both bldgs) $4 ,800 $15 , 000 $6 , 600 $16 ,800 P. I. Payment $3 , 174 $38 , 088 NOTE : Agent rental Income $2 , 835 $34 , 020 • Each Office Is Independently Owned And Operated